The following guest blog is by Jorge Gallardo Ruis in response to Guest Blog: The falling US dollar and Lempira.
The unknown author also forgets that most of the imported articles we purchase come from the US. When the dollar rises and falls, it does so with respect to other currencies that are not very common in Honduras: The Euro, the British pound, the Yen and most recently, the Chinese currency.
Thus, inflation is affected very little when the dollar rises and falls, or at least, we're affected the least, compared to the idea that the Lempira fell against the dollar. That would promote our exports to the US (our greatest market) but push inflation as the prices rise on consumer goods imported from the US, as the author says, and that would affect us much more than "riding" the dollar up and down against the other currencies. In this sense we are still living by the dollar standard as we were in the 60s, except the ratio has changed.
What the author recommends: "About the only way to keep up the living standard is have a more efficient economy and trying to reduce the import of oil and a lot of food items and became more self sufficient in energy." was called in the 60s "Import substitution" and would have worked well, as it did in the Asian Tigers, except that's when we had the real coups which were a means for a few to mass accumulate the wealth. General Oswaldo Lopez Arellano became one of the wealthiest men in Honduras together with a clique of generals and servants, while they beat up on students.
I would say Import Substitution is still the current policy, with the biggest import, oil, as its primary target. That is why those recent Honduran contracts for renewable energy were so important.
The stability of the Lempira with respect to the dollar is maintained, not quite by manipulation which sounds kind of nasty, but by a series of macro-economic mechanisms which include primarily the open market where dollars are made available to big traders (the banks as intermediaries and big projects), but also include the interest rates to try to attract foreign capital. The problem was that the interest rate had created accumulation of funds but there were no big projects to invest in, circling back to the renewable energy projects, which Zelaya was holding back. His only investment project was "la cuarta urna" as we all know.
But these projects will not create as many jobs as manufacturing and infrastructure would. Appreciating the Lempira with respect to the dollar, as the author recommends would, yes, reduce inflation which is small, but would also affect our manufacturing exports by making them more expensive in the US. So, appreciating the Lempira would hurt the slow recovery we are having in industrial production and affect adversely job creation, a current priority.
I would say that riding the dollar while the dollar is depreciating should force us to look for new markets for manufacture and tourism in Europe and Asia where we're becoming cheaper to buy from and visit.
Many thanks go to Jorge Gallardo for allowing me to post this article. You can find other Blogicito guest articles by Sr. Gallardo here.
Jorge Gallardo Rius is a Honduran citizen who was born in La Ceiba and currently lives in Tegucigalpa. He studied in Louisiana, Houston, and Romania and is currently an Information Systems Analyst. Jorge's mother was a US citizen so he grew up speaking both languages at home. For a time, he wrote a weekly column on Education and Technology for an English-language weekly newspaper. He offers English/Spanish and Spanish/English translations. Sr. Gallardo can be contacted at jgallardo515 at yahoo.com
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